Massachusetts Divorce Settlement Laws
As per Massachusetts Divorce Settlement Laws, capital gains, lump sum settlements and alimony are treated as income. However, child support amount is not regarded as a part of income. The 3 types of payments mentioned above are tax deductible for the payer (the spouse who makes the payments). The payee (the spouse who receives the payments) is expected to disclose the received amounts and pay the income tax associated with those.
Massachusetts Divorce Settlement Laws for different incomes
Capital Gain Tax
When an investment (like stocks, real estate) is sold, the profit received by the seller is termed as Capital Gain. For example, if a person sells a marital residence, capital gain is the difference between the current fair market value and the price for which it was purchased.
This capital gain is regarded as income and is added to the total income when a person files a tax return. In some cases, the divorcing partners decide to sell the investment together and split the proceeds. Alternatively, they might split the property in divorce settlement. Then, each partner is responsible for disbursing tax on his / her individual portion.
In Massachusetts, solely in the case of a marital home, there is a relief for capital gain taxes.
Lump sum payments
In some divorce settlements, the spouses might accede to exchange a lump sum payment instead of monthly alimony payments. It is expected that the spouse who receives this lump sum to include the amount in the total income while filing a tax return. This payee would have to pay the income tax related to this lump sum. In some rare cases, it is possible that the payee can request the payer to disburse part of the income tax.
The advantage of these laws is that the payee is required to pay tax on the settlement only once. However, if the payee invests this money and earns any interest on it, then, the payee is expected to pay income tax on this interest.
Child Support amount
The payee has to include the child support amount on the tax return. However, it is not essential to include this amount in the total income. Also, the payee need not pay any income tax for receiving this amount. Similarly, the payer cannot claim a tax deduction for the payments he / she had made.
A child support amount is not termed as income. The intention of this amount is to arrange for the entertainment, shelter, clothing and food of the child or children. The child or children have a right to have this amount.
The payee must include the amount of alimony in his / her total income in the tax return. Income tax is calculated for the alimony amount received by the payee. On the other hand, the payer can ask for a tax deduction on the alimony amount paid by him / her.
Alimony is regarded as a part of the income and this topic cannot be dealt with or manipulated by any means while drafting a divorce settlement.
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